Investing in tough times

“The investment level on the NCS reached an all-time high in 2013. Since 2010, Statoil has increased its annual investments by more than 75%, and we see that the investment level will remain high in the years to come. But we must address the cost level now to ensure profitable NCS production in the future,” said Statoil’s executive vice president for Development and Production Norway, Arne Sigve Nylund, in his speech at Statoil’s energy seminar in Bergen today, 15 May.

Together with Margareth Øvrum, executive vice president for Technology, Projects and Drilling, Nylund presented Statoil’s views on what it takes to achieve profitable production from the NCS in the future.

During the last decade the return on capital employed (RoACE) has been reduced by a third. A high oil price partly counters this development, but has also helped drive the costs to record-high levels, which makes the industry even more vulnerable to drops in the oil price.

In other words: it costs more to invest in oil and gas, the margins are tighter and the risk higher. This challenge affects the whole industry, both inside and outside Norway, and all players.

Strong appeal

“Statoil wants to be in the forefront and meet the challenges by focusing on cutting costs, efficiency and simplification. As operator, however, we need to have both suppliers and authorities on our team to succeed,” said Nylund.

“The authorities must ensure predictable framework conditions to maintain the industry’s competitiveness. A stable activity level is also crucial,” he continued.

Øvrum, for her part, clearly stated that the operators and suppliers must work together to meet the challenges going forward.

“Future success for both Statoil and Norwegian supplier industry will undoubtedly require higher efficiency in our cooperation, and higher performance by both parties,” she said.

Statoil has established two comprehensive efficiency programmes to make sure that the company is adapting and addresses the current cost development. The two programmes focus on technical and organisational efficiency.

“We have already seen some effects of the work we have started,” said Øvrum.

Bright future

If the industry makes the right moves to meet the cost and profitability challenges, the future of the NCS looks bright. Statoil is still making big discoveries resulting in stand-alone developments - such as Gudrun, Valemon, Gina Krog, Johan Castberg, Aasta Hansteen and, not least, Johan Sverdrup.

The Sverdrup field alone will be a cornerstone for growth for many decades, not only to Statoil, but also to the supplier industry and Norwegian society at large.
The company is furthermore investing large sums in extending the life of producing fields, which gives considerable spinoffs both locally and in the supplier industry.

“A total of 6,000 people are directly employed on the Oseberg and Troll fields. This shows that every year of profitable NCS production leads to long-term gain and value creation throughout the whole value chain,” said Nylund.

Considering the resources available on the NCS in the form of large and near-field discoveries, expertise and infrastructure, the executive vice president believes that the NCS’s position is unique.

“The NCS will be the backbone of Statoil’s activities and production for the next 40 years – the foundation of our competence base and vital to our activities both inside and outside Norway,” said Nylund.